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Productivity Assessment Curbs Farm Taxes

By Staff | Mar 30, 2012

Ballooning land and commodity prices will have only a nominal impact on property taxes.

The outrageous land prices, as much as $5,000 an acre in the Red River Valley, would have been catastrophic for farmers had the state not changed from a market to a productivity assessing system in 1980. A property tax based on market value of farm land would be disastrous considering the wild prices being paid.

By the end of the 1970s, the Legislature had decided that assessing farm land on the basis of market value was no longer reasonable since the farm market had become clogged with questionable sales. After a decade-long crusade by then Senator Don Moore of Forbes, the Legislature established productivity as the yardstick for farm assessments.

As a consequence, the high prices being paid for land will have no influence on farm property taxes. However, high commodity prices will have some impact on the productivity formula.

The determination of the productivity assessment begins in the North Dakota State University Department of Agribusiness & Applied Economics where farm management specialists consider a number of factors, including crop production, input costs and interest rates. Included are all farm crops and livestock grown and sold in North Dakota.

The final calculations result in an average value per acre on cropland, noncropland and inundated agricultural land in each county. These computations are sent to the office of the State Tax Commissioner who distributes these values to the 53 counties.

At the county level, directors of tax equalization and assessors assign the values to individual farms based on detailed soils studies. Soils studies are assumed to be the best predictor of productivity of the land.

Two factors will affect the impact of high commodity prices on land assessments.

First, current commodity prices will be rolled into an 8-year base so lower prices a few years ago will moderate the effect of today’s higher prices.

Second, the figure coming from the 8-year base is combined with the assessments for residential and commercial property in cities and townships. The addition of residential and commercial property to the base will moderate the influence of the productivity valuation. The degree of moderation will depend on the proportion farm land carries in relation to the rest of the county’s taxable valuation.

While the assessment process is underway, budgets are being prepared by the various local governments. When these budgets arrive in the county auditor’s office, they are translated into mills.

The increased land values caused by increased commodity prices will increase the size of the tax base of local governments which, in turn, will result in lower mill rates because of the larger base.

Anyone who understands all of the elements and compromises involved will recognize that the productivity system is not without its flaws. However, in the final analysis, it represents a real break for farm land owners when compared to owners of residential and commercial property who are still being assessed on market value.

That disparity does not trouble me. It would be counterproductive to impose a burdensome tax on an industry that requires extensive property ownership to succeed. The productivity assessment system can be considered our state plan for keeping farmers on the land.

Recently, I had occasion to visit with Farm Management Specialist Dr. Dwight Aakre at NDSU, a key analyst in developing and calculating the annual productivity index. We compared the problems in the productivity system with the problems in the market assessment method and came to the conclusion that both systems had their flaws but for farmers the productivity method had fewer than the market approach.

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